Gold on Monday held close to 5-1/2-month lows, with a strong dollar offsetting the upward influence of an escalating trade dispute between the United States and China. Spot gold prices were hemmed in a tight trading range after Friday's selloff because of competing pressure and support on Monday, forcing investors to reassess their positions, said Phillip Streible, senior commodities strategist at RJO Futures.
"We saw such an excessive washout on Friday. Speculators are reassessing their positions and consolidating for about 48 hours until we get news to wash the market," Streible said.
"US-China trade dispute affected a whole bunch of physical commodities ... Definitely we have a trade war going over now...that will have a spillover on the gold market."
Spot gold was flat at $1,278.18 an ounce by 1:33 pm EDT (1733 GMT), while US gold futures for August delivery settled up $1.60, or 0.1 percent, at $1,280.10 per ounce. Gold plunged 1.8 percent on Friday, its biggest one-day fall since November 2016, despite Washington deciding to enact tariffs on $50 billion in Chinese goods.
Markets fear a trade war could damage global growth. World stocks fell on Friday and Monday. Gold would remain sensitive to trade dispute headlines and the possibility that a showdown over immigration between German Chancellor Angela Merkel and her conservative allies, the Christian Social Union, could escalate, said Saxo Bank analyst Ole Hansen.
"The market is also ignoring the political risks in Germany," said analysts at Commerzbank. "A lack of consensus on refugee policy could even cause a split in the government." As long as gold continued to trade below its 200-day moving average at $1,307 prices were more likely to fall than rise, analysts at ScotiaMocatta said.
Reuters technical analyst Wang Tao said gold could break support at $1,277 an ounce and fall towards $1,258-$1,268. Meanwhile, silver lost 0.4 percent at $16.45 an ounce after falling 3.6 percent on Friday. Silver sunk to $16.39, its lowest in almost two weeks.
Platinum declined 0.5 percent at $883.40 an ounce, dropping to a four-week low, $877.65. Palladium was down 0.2 percent at $988.30 an ounce, declining to $979.99, its lowest since June 5.